MBank, Inc. v. State Farm Fire And Casualty Company, 3:10-cv-01276

MBank held a security interest in Lot 25 as part of a construction loan to JTW.
JTW insured Lot 25 under State Farm’s Rental Dwelling Policy issued to JTW.
Lot 25 sustained water damage on January 15, 2009; State Farm opened claim No. 37-1148-6541.
MBank and JTW settled the loan dispute with a Settlement Agreement dated April 10, 2009, including an Estoppel Deed conveying Lot 25 to MBank.
The Deed and Agreement stated full satisfaction of the loan obligations and MBank waived further claims, extinguishing JTW’s debt; the forbearance language carved out water-damage liability predating the Deed.
State Farm later denied MBank’s insurance claim in August 2009, asserting mortgage debt extinguishment and no insurable interest remained.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether MBank may recover under the Policy after full satisfaction of the debt.	MBank contends its insurable interest persisted and losses are recoverable.	MBank’s insurable interest was extinguished by the Deed and Agreement, precluding recovery.	MBank has no insurable interest; recovery denied.

Haskin v. Greene, 205 Or. 140 (1955) (open mortgage clause; mortgagee rights limited to debt; full satisfaction extinguishes interest)
Universal Mortgage Co., Inc. v. Prudential Ins. Co., 799 F.2d 458 (9th Cir. 1986) (extinguishment of debt precludes mortgagee recovery to extent of debt)
Rosenbaum v. FunCannon, 308 F.2d 680 (9th Cir. 1962) (mortgage debt extinguishment precludes further policy recovery)
Mann v. Glens Falls Ins. Co., 541 F.2d 819 (9th Cir. 1976) (death of mortgage debt via deed in lieu; extinguishes insurable interest)
Ins. Co. of North America v. Citizens Ins. Co., 425 F.2d 1180 (7th Cir. 1970) (open mortgage/forbearance concepts; debt extinguishment impact)
Transportation Equipment Rentals, Inc. v. Oregon Auto. Ins. Co., 257 Or. 288 (1970) (open mortgage clause; mortgagee's rights limited to insured's interest)